Consider Two American Call Options,with Maturities Three Months and Six

question 11

Multiple Choice

Consider two American call options,with maturities three months and six months on the same stock and same strike price.The stock pays dividends in two months time and every quarter thereafter.Which of the following statements is most accurate?

• A)The three-month option must be worth more than the six-month option.
• B)The three-month option must be worth less than the six-month option.
• C)The three-month option must be worth less than the six-month option if the dividend payments remain constant.
• D)The three-month option may be worth more than the six-month option.

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Definitions:

Molecular Formulas

Notation used to represent the quantity and type of atoms present in a molecule, without displaying bonding or structure.

Sawhorse Structure

A pictorial representation used in chemistry to visualize the spatial arrangement of bonds and atoms in a molecule, providing a three-dimensional perspective.

Eclipsed Conformer

A conformer of a molecule in which adjacent atoms are aligned with minimal spatial separation, leading to maximal torsional strain.

Ethane

A colorless, odorless gas, which is the second simplest alkane, with the chemical formula C2H6.